May 13, 2015
Mortgage rates can't catch a break. They're not much higher than yesterday, but yesterday was already the worst of 2015. Actually, it's the broader bond market that can't catch a break. European and US sovereign debt rates are moving higher at an alarming pace. Mortgage rates are holding firmer by comparison, but being dragged higher just the same. Little has changed since yesterday about the bigger picture problems facing rates. If you're looking for a general recap of those problems, it would be worthwhile to revisit yesterday's coverage.
On a specific note, we had several events today that should--by all rights--have helped rates recover a bit. At almost any other time in history, the types of events seen today would indeed have resulted in rates moving lower. These included significantly weaker economic data in the morning, and an exceptionally strong Treasury auction in the afternoon. Weaker economic data creates more demand for less risky assets like bonds. Higher demand results in higher prices and lower rates... USUALLY. It's the same with a strong Treasury auction USUALLY suggestion higher demand for bonds--demand that tends to spill over to mortgage-backed-securities.
But the usual reaction was nowhere to be found today. Granted, there were brief, token movements in financial markets in logical directions, but they were quickly overwhelmed by the pervasive momentum that's been leading us toward higher rates for the past several weeks. This sort of paradoxical movement is almost always at that scene of the worst moves higher. This move hasn't quite entered the same territory as late 2010 or mid-2013, but it's the worst we've seen since then.
Of course you'll be able to find plenty of old people (and maybe even a few young people) to tell you that 4% rates are still phenomenal. They're right! But it still sucks when you're looking at a 4% rate just a few weeks after 3.625% was widely available. Abrupt moves are not fun no matter where we are on the rate spectrum. Things could always get worse before they get better. It continues to make almost no sense to float in this environment, but if timed correctly, and if it happens, the rewards are significant. Bottom line: high risk, high reward, but the risk is too high for anyone that's not OK with losing a lot of money for an outside chance at a big win. Better to lock and close and re-approach (or "float down," depending on the lender) in the future if rates drop significantly.
Loan Originator Perspective
"I've been in a lock mode for several weeks now, and today is a prime example why that's been a sound strategy. The 10 year treasury auction was rated an "A++" by Matthew Graham, one of our strongest in years. Ordinarily this would have supported bonds, making for lower rates. Instead, as an example of how much momentum and market sentiment are against us, bonds worsened after the auction, and we've seen numerous reprices, when we logically should have been improving. The trend is not our friend, and until that definitively changes, failing to lock early is foolhardy." -Ted Rood, Senior Originator
"What a disappointing day. Just when you think the tide might be shifting toward lower rates, they fade. Despite weak economic data here and abroad and a outstanding auction of 10 year notes, rates which started the day in better territory have given back all the gains. We do have our final treasury auction for the week tomorrow and it is quite common to see a rally once all the supply has been absorbed...however the trend is still not our friend. If your lender has already repriced for the worse today, and if you can afford to be wrong, i think floating into tomorrow is worth the risk." -Victor Burek, Open Mortgage
"This is starting to feel a lot like 2013 when rates shot higher. Should the 10 year yield close higher again tomorrow things could get much worse. Risk reward favors locking. " -Manny Gomes, Branch Manager Norcom Mortgage
Today's Best-Execution Rates
- 30YR FIXED - 4.00%
- FHA/VA - 3.75
- 15 YEAR FIXED - 3.125-3.25
- 5 YEAR ARMS - 2.75 - 3.25% depending on the lender
Ongoing Lock/Float Considerations
- 2015 began with a strong move to the lowest rates seen since May 2013. The catalyst was Europe and the introduction of European quantitative easing.
- It's a highly uncertain time for global financial markets. On the one hand, some believe we're in the midst of a race among world central banks to devalue currencies and lower interest rates. Others believe that the global economy is turning a corner and rates will grind higher. That had been creating a lot of volatility, which made for uncertain fluctuations from day to day. But those periods of volatility have been interspersed by utter indecision where rates are effectively drifting sideways with no conviction and no desire to get off the fence
- With European QE having now begun, we're on high alert for a big picture bounce in European economic data, sentiment, growth, and rates. The more it looks like such a bounce is taking hold, the greater the risk that domestic bond markets and mortgage rates will also experience a big bounce higher. There was a possibility that the bounce occurred in February, but European bonds got back to the task of improving in March. This helped calm the domestic bond market's move toward higher rates. April's weak employment report helped solidify it.
- Unfortunately, this didn't result in a strong move past the year's previous lows. In fact, rates at home and abroad hit a floor of sorts and flat-lined. They've begun moving higher at a quick pace, and we're once again forced to confront the possibility that this will be a bigger, longer-lasting correction. Until such a thing can be ruled out, Locking makes far more sense.
- As always, please keep in mind that the rates discussed generally refer to what we've termed 'best-execution' (that is, the most frequently quoted, conforming, conventional 30yr fixed rate for top tier borrowers, based not only on the outright price, but also 'bang-for-the-buck.' Generally speaking, our best-execution rate tends to connote no origination or discount points--though this can vary--and tends to predict Freddie Mac's weekly survey with high accuracy. It's safe to assume that our best-ex rate is the more timely and accurate of the two due to Freddie's once-a-week polling method).